Here's why 3 US companies moved jobs to Mexico

By Jim PuzzangheraLos Angeles Times

Thursday

Dec 22, 2016 at 4:57 PMDec 22, 2016 at 8:59 PM

WASHINGTON — Brake Parts Inc. had manufactured brake calipers at a factory in Chowchilla, a community in California’s Central Valley, for nearly 30 years, but a company executive said pressure was growing to reduce costs as competitors moved their factory work to Mexico.

About a year ago, employees got the bad news: Operations were moving to a facility in Nuevo Laredo, Mexico. By the time the factory closed in August, about 280 Brake Parts workers had lost their jobs.

President-elect Donald Trump has strongly criticized such job losses and has threatened “consequences” for companies that ship factory work out of the country — among those, possible tariffs on bringing goods back into the U.S.

But Randy Clausen, vice president for global human resources at Illinois-based Brake Parts, said it is difficult — and costly — for companies to fight changes taking place in the global economy.

“The workforce we had in Chowchilla was a great workforce, and it would have been a hell of a lot easier to just leave it there, I’ll tell you that,” he said.

But because of lower prices offered by competitors, Brake Parts was losing money on each pair of calipers it churned out, Clausen said. In effect, he said, it was as if the company was “taping dollar bills to every product sold at retail.”

Since the North American Free Trade Agreement between the U.S., Mexico and Canada went into effect in 1994, trade with Mexico has grown dramatically. And during that period, a small U.S. trade surplus with Mexico of about $1.7 billion in 1993 has ballooned into a large deficit — $61 billion last year.

The federal government doesn’t have figures on NAFTA’s effect on jobs. But the Economic Policy Institute think tank estimated that as of 2010, the trade imbalance with Mexico had cost the U.S. about 683,000 net jobs — about 60 percent of those in manufacturing.

“You can pay low wages. You’re not too far away. You’ve got a border that because of the free trade area you can bring goods into the United States,” said Martin Neil Baily, a senior fellow at the Brookings Institution think tank who has studied manufacturing job losses. “So given the substantial wage advantages, for many companies, it’s an attractive proposition.”

Also, some U.S. jobs have been created as companies here form part of the supply chain for Mexican factories.

Here’s a look at why three companies have moved, or are in the process of moving, work to Mexico.

Rexnord Corp., Indianapolis

In October, Rexnord, which makes industrial bearings at an Indianapolis factory, notified the United Steelworkers Union Local 1999 that it had “tentatively decided” to move its operations there to an existing company facility in Monterrey, Mexico, according to a notice from the company posted on the union’s website.

Union President Chuck Jones said 300 workers will lose their jobs as the factory operating since the 1950s will close its doors early next year.

“We sat down with the company, and we made some proposals to try to keep the jobs here, to no avail,” Jones said.

“They said they were saving $15.5 million a year, and they said we couldn’t come up with nothing, unless we worked for $5 an hour, to keep this facility open,” he said.

Rexnord’s Indianapolis employees earn $25 an hour, along with benefits, compared with $3 an hour with no benefits for the workers in Mexico, Jones said.

“It’s going to be devastating, without a doubt,” he said of the job losses.

Rexnord did not respond to a request for comment.

Mondelez International, Chicago

Nabisco, a subsidiary of Illinois-based Mondelez, had been making Oreo cookies in Chicago since 1953. But in July, the last Oreos rolled off the production lines at the factory.

Last year, Mondelez chose its facility in Salinas, Mexico, over Chicago for a $130 million upgrade that included four new state-of-the-art manufacturing lines for the company’s top products.

That meant the 1,200-person workforce in Chicago would be cut in half as “nine older, inefficient manufacturing lines” there — including those making Oreos — were shifted south of the border, the company said.

The company could save about $46 million a year by putting the new lines in Mexico because of “fixed and variable costs,” Guzzinati said.

Talks with the unions to reduce what the company said was “a significant savings gap” were unsuccessful, she said.

In recent years, the higher price of sugar in the U.S. caused by import restrictions and other federal policies to support the domestic industry have combined with cheaper Mexican labor to lead companies to move cookie production south of the border.

With layoffs coming, some Chicago employees took jobs at other Mondelez facilities, and some left for other work. About 435 employees were laid off, with about 100 recalled over the summer, Guzzinati said.

Anthony Jackson, 40, of Chicago, was among those laid off. Workers would have had to take a 60 percent pay cut for Mondelez to even consider choosing Chicago over Mexico for the manufacturing upgrades, he said.

“You can’t tell me that they seriously thought anyone would say OK to giving away 60 percent of their pay and benefits,” said Jackson, a spokesman for the Local 300 of the Bakery, Confectionery, Tobacco Workers and Grain Millers union who worked at the factory for five years before being laid off in March.

Brake Parts Inc., Chowchilla, Calif.

When Chowchilla officials learned in September 2015 that the small city would be losing its biggest employer to the lure of lower costs in Mexico, they scrambled to try to save the jobs by offering incentives to stay.

“The pay disparity was just so large, so it needed to be some pretty good credits,” City Administrator Brian Haddix said.

After speaking with the Governor’s Office of Business and Economic Development and Pacific Gas & Electric Co., the city proposed a package worth about $325,000 over five years, including a 30 percent reduction in electricity rates, he said.

“It was not enough,” Haddix said.

In recent years, Mexico has become an increasing force in automobile manufacturing as the workforce there has become more skilled, said Mark Muro, a senior fellow at the Brookings Institution who has studied the issue.

“There clearly is a cost differential, and more and more kinds of activity are becoming feasible there,” he said. “Mexico no longer offers cheap, unskilled work. It offers cost-effective, fairly well-skilled work.”

The company no longer does any domestic manufacturing. Of its 5,300 employees worldwide, 600 are in the U.S., Clausen said.

“In order to get to business economics that made sense or even break even, we had to change the dynamics, and that’s the only way we could do it,” he said.

“Trump is saying we’re going to bring back jobs to the U.S. OK, that’s interesting. But what’s the plan? Because it’s not as easy as just saying that.”

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